Canadian Trade Deficit Records Decline

The Canadian trade deficit shrank further in the month of August to C$1.9 billion from a revised C$2.2 billion in July, the July reading was initially reported as C$2.5 billion. The release was much more positive than the market expectation of C$2.5 billion for the month after the July revision was the result of a higher estimate for exports. Exports also recorded a rise of 0.6% within the month as imports remained very close to its previous levels after a rise in volumes was countered by falling prices. The data overall will provide some net support to confidence in the UK trade outlook. Exports to the US declined 1.6% on the month with the trade surplus declining to C$2.5bn from C$3.0bn previously. There was a strong 7.7% rebound in exports to countries outside the US, with a notable improvement with the UK, although July data had been distorted by erratic items.

Exports rose by 0.6% on the back of a healthy performance by the consumer goods and metallic products sections. Overall volumes rose by 0.4% while prices edged up 0.2%.

“I guess we can breathe a sigh of relief because export volumes did rise for a second straight month,” said Sal Guatieri, senior economist at BMO Capital Markets. Analysts have long predicted exports would rise as the Canadian dollar remains weak and the U.S. recovery continues. The data should please the Bank of Canada, which says non-energy exports are crucial to helping revive an economy hobbled by low oil prices.

“It’s a very good performance. It looks like we’re getting the turnaround we were forecasting,” said Peter Hall, chief economist at Export Development Canada.

Some analysts also believe that the latest trade data bear an overall positive sentiment. Derek Holt, a Bank of Nova Scotia economist stated that, “It suggests we continue to gain export momentum into the third quarter,” Mr. Holt further said, “That’s a more positive signal for the Canadian economy.” He noted that some rebound had been expected after a particularly weak second quarter, adding there are still questions about whether the momentum can be sustained.

The central bank, which had predicted a third-quarter recovery following a devastating May wildfire in Alberta, is due to make its next interest rate announcement on Oct. 19 and Guatieri said the August trade figures reduced the chance of a cut.

“I think the Bank of Canada will just sit back anticipating further increases in exports going forward,” he said.

The Canadian dollar rallied on the data, as it rose to $1.3188 to the U.S. dollar, or 75.83 U.S. cents, up from $1.3208, or 75.71 U.S. cents before the release.